The UNICAP rules require inventory to include a prorated portion of advertising and distribution expenses.

Question

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UNICAP rules (Uniform Capitalization rules) require that direct costs and an appropriate portion of indirect costs related to the production of inventory be capitalized in the cost of inventory. However, advertising and distribution expenses are considered selling expenses, not production costs, and are therefore not capitalized into inventory costs under UNICAP rules.

The UNICAP Rules Require Inventory to Include a Prorated Portion